IMF TRACKER - EPOC concerned about underperforming CAPEX
McPherse Thompson, Assistant Editor - Business
Members of the Economic Programme Oversight Committee (EPOC) have expressed concern about the Jamaican Government's ongoing cutback in capital expenditure to help to meet the primary surplus.
Expenditure was $12.5 billion below budget for October, the single largest cut since the start of the fiscal year, with the capital side contributing $5.2 billion as the government seeks to meet the 7.5 per cent of gross domestic product surplus set under its economic support programme with the International Monetary Fund (IMF).
"We have some concern at EPOC that every month, every quarter we are underperforming on the capital budget side," EPOC co-chairman Richard Byles told a media briefing at Sagicor Life Jamaica, New Kingston yesterday, where he released the 19th communique of the private sector members of the IMF programme oversight body.
"In other words, we are withholding spending on the capital budget side to help to meet the primary surplus," he said.
"That is fine and good from a point of view of managing the primary surplus, but when you look at the cumulative effects over the 18 or 20 months of the programme, you will see that a lot of funds slated for capital expenditure haven't been spent," Byles said, referring to the remainder of the four-year IMF extended fund facility.
"And we see the product of that on our roads and on the social services. So we quite understand why it has been reduced, but we would rather see a greater effort to collect the taxes than to cut the capital budget. The capital side is really important," he added.
He said the cumulative primary surplus of $45.9 billion for the period April to October this year was 7.5 per cent better than the budget of $42.7 billion.
At the end of November, the Net International Reserves stood at US$2.01 billion, surpassing the IMF target by US$560 million, but will be reduced as the government pays down debt.
Low tax revenues
Byles said tax revenues for the period remained lower than budgeted by $7.4 billion. The major underperformers were company taxes, which fell short by $4.5 billion, although there was some improvement in October, and General Consumption Tax (GCT) on both local and imported goods, falling short by $5.85 billion.
The outturn on GCT was partly as a result of higher-than-programmed refunds and lower-than-expected collections from government purchases.
Byles said pay as you earn taxes continued to exceed budgeted intake on a monthly basis and was 8.5 per cent higher than the corresponding period the previous year.
Revenue collection was also positively impacted in October by improvements in withholding and telephone taxes.
The fiscal deficit - the primary balance plus interest payments - was $26.8 billion, 19 per cent better than the budgeted deficit of $33.1 billion.
The EPOC co-chairman emphasised that the recent dramatic fall in oil prices is of major importance to Jamaica, noting that as at yesterday, there was about a 40 per cent reduction since January this year, and if sustained over the next 12 to 18 months could have a significant beneficial effect on the country's current account deficit as the country spend less US dollars to purchase oil.
It would also positively impact on growth through improved consumer purchasing power as gasolene and electricity costs fall, reduce the build-up of the PetroCaribe debt, lower operating costs for businesses and the government, and help to lower inflation going forward.
On the negative side, he said, it may reduce sales consumption tax to government, but said EPOC was urging the government not to retreat from its efforts to be more energy efficient as the positive development in oil prices may be transitory.
Byles said the October fiscal numbers signalled a good start to the seventh quarter under the IMF programme.
Combined with the cessation of drought which affected the country for the first part of the year, and good tourism numbers to date, "we are cautiously optimistic that the economy could return to positive growth and inflation could remain minimal for the quarter ending December 2014", Byles said.
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